Venezuela Desperation Roils Bonds After Output Plunge, GE Dealby
Oil production fell across all regions in country, IPD said
PDVSA's notes slumped 2.6% after report came out Tuesday
Cash-strapped Venezuela’s plunging oil production is spooking bond investors.
The state-owned oil company has seen its notes, with a face value of $12.5 billion, tumble 2.6 percent since energy consultant IPD Latin America said in a report Tuesday that the nation’s crude production fell across all regions for the first time since 2008. That day, Reuters said that Petroleos de Venezuela SA had to pay off its debt to some suppliers including Fairfield, Connecticut-based General Electric Co. with securities that have a cross-default clause with its bonds.
The reports are the latest signs of Venezuela’s worsening finances and increasing desperation as it grapples with its worst recession in decades and a collapse in oil prices over the past two years. Last month, Schlumberger Ltd., the world’s largest provider of oilfield services, said it planned to scale back operations in Venezuela after PDVSA racked up more than $880 million in unpaid bills. Other companies -- including Halliburton Co. -- have also said they’re owed money.
“It’s a reality check,” said Siobhan Morden, the head of Latin American fixed-income strategy at Nomura Holdings Inc. “If they drive out the suppliers and production suffers, then it’s a much more difficult process to rebuild the economy.”
Venezuela’s oil output totaled 2.59 million barrels a day in the first three months of the year, down 188,000 barrels from an average of 2.78 million in 2015, IPD said in an e-mailed statement Tuesday. PDVSA is also considering issuing $2.5 billion of bonds to pay service providers, according to IPD.
The oil company, which struck a deal with GE for $310 million, is discussing another $1.5 billion package of securities to settle debts with other firms, Reuters reported.
Officials at PDVSA didn’t respond to e-mailed requests for comments on the company’s plans for bond issuance and its debt to suppliers. PDVSA bonds rallied on Thursday as oil prices surged because of falling production in the U.S. Its benchmark bonds due November 2017 rose 0.61 cents to 56.91 cents on the dollar.
PDVSA owed major suppliers $7 billion in September, according to a document provided by Antonio Barreto, a lawmaker on the oil committee of the Venezuela’s National Assembly.
Hard-currency reserves fell to a 13-year low of $12.6 billion last week. Venezuela, which relies on crude shipments for 95 percent of its export revenue, and PDVSA have $12.3 billion of payments due on their overseas bonds in the next year.
Converting its arrears into financial debt “highlights how severely PDVSA’s liquidity is impaired,” Casey Reckman, an analyst at Credit Suisse Group AG in New York, said in a note to clients on Wednesday.